When should a user of an IRS-preapproved document sign its SECURE 2019 amendment?

[Peter Gulia]

A recordkeeper recently presented to my client (a plan’s sponsor, administrator, and trustee) the recordkeeper’s draft of a “SECURE 1.0/CARES Interim Amendment”.

Some choices are filled-in with the recordkeeper’s presumptions. Other choices are deliberately uncompleted, but specify a default if no box is marked.

While recognizing that this amendment need not be done until December 31, 2025, the recordkeeper suggests completing and signing it now. Here’s my question:

Is there any disadvantage in waiting until the last few months of 2025 to do this amendment?

Is there any advantage (beyond removing the risk of forgetting) in doing it now?

What opportunities are gained or lost by waiting or acting now?

(If it matters, this client never uses the recordkeeper’s draft of a summary plan description or a summary of material modifications.)

BenefitsLink neighbors, I welcome your ideas.

While I’m not a procrastinator when it comes to plan amendments (I delivered other clients’ SECURE 2019 amendments in early January 2020), I recognize that I don’t know enough about the practicalities involved.)

[Paul I]

Managing plan amendments and operating plans in accordance with the terms of the plan document has become unwieldy.  To rip off a quote from the Pirates of the Caribbean: "The pirate code is more like guidelines than actual rules". 

We are in a era where effective dates of legislation has compressed the time frame for implementation that the Agencies have insufficient time to follow an orderly procedure for issuing regulations.  With effective dates of provisions that are earlier than official guidance is available, plan providers are faced with implementation without any official guidance.

A plan sponsor that wishes to take advantage of provisions in new legislation can do so by starting to administer the plan based on a reasonable interpretation of the new provision at any time after the effective date of the provision.  If official guidance is issued subsequent to the start of the use of the new provision, the plan must adapt its administration to conform with that guidance.  These steps, taken together, are labeled as the plan is being administered in good faith.  The plan document does not have to be amended to reflect any of this until much later.

Some questions that arise at this point are:

• What is the appropriate communication of the new provisions to participants (the SPD and SMM are based on the official plan document)?
• Who has to receive the communications of the new provisions (is all participants and beneficiaries, affected participants and beneficiaries,...?)
• Can the plan sponsor change the mind and modify the administration of a new provision or even rescind it if, for example, official guidance requires onerous administrative procedures than are palatable to the plan sponsor (assuming the legislation is silent on the ability to rescind using the provision)?
• At a higher technical level, is the plan violating the requirement that it must follow the terms of the plan document if the plan document has not yet been amended to contain the new provisions (granted this is a stretch, but possibly, could an unenrolled participant argue the plan failed to provide required disclosures)?

Moving on, the vast majority of plans use pre-approved documents.  Pre-approved plan documents are authored by Mass Submitters, and Pre-approved Plan Providers offer the documents to Plan Sponsors.  Mass Submitters provide periodic updates to their plan documents and author interim plan amendments needed for plans that are terminating.  Without official guidance available, it is common for Mass Submitters to provide Pre-approved Plan Providers with "good faith" amendments (literally using quotation marks) to indicate that these amendment are more like guidelines than actual rules.  These "good faith" amendments come with a caveat that they have not been blessed with a formal review by the IRS and are made available for Pre-approved Plan Providers to make a good faith effort to keep plan documentation somewhat formal.

This brings up some other questions for a Plan Sponsor to consider when presented with an interim amendment:

• Am I adopting this interim to take advantage of new provisions available as a result of recent legislation?
• Is the decision to adopt a new provision reversible and am I ready to make that commitment (basically, am I adopting a protected benefit)?
• Will integrate the communication of the new provision into the existing required plan disclosures?
• Are my HR, payroll and recordkeeping systems ready and available to support my decision?

We also must be aware that change fatigue (resistance or passive resignation to organizational changes) plays a part in how a Plan Sponsor will react to a recordkeeper presenting an interim amendment with a recommendation to sign it now.

I am sure there is much more to this discussion, and many other points to consider. 

 

[CuseFan]

19 hours ago, Peter Gulia said:

December 31, 2025

Remember that IRS Notice 2024-02 extended this to 12/31/2026.

[Peter Gulia]

Considering the information and decision-making factors Paul I describes (and CuseFan’s pointer that the recordkeeper described an unnecessary due date), I’m inclined to suggest my client schedule this for mid-November 2026.

Any different views?

[Belgarath]

The amendment date should be after the date the practitioner is planning to retire.😁

(If there is anyone reading this who doesn't have a sense of humor, please ignore the above comment)

But seriously, to a certain extent the amendment date may also be driven by other factors - staffing, number of plans, other projects such as restatements, etc.

[Paul I]

Adding to the chaos, DC Cycle 4 technically has started already but the IRS is not yet open for business to receive submissions.  The IRS expected to open the submission window from Feb. 1, 2024, through Jan. 31, 2025, but I have not seen an announcement. 

If the window is open soon, we likely will be doing Cycle 4 amendments for everyone with the restatement period running from the latter part of 2026 into 2028. 

The December 31, 2026 hits right around the beginning of that restatement period.

The LRMs were updated this January and are available here https://www.irs.gov/pub/irs-tege/dc-lrm0124.pdf if anyone has time to spare to read through 149 pages.

If the submission window does open soon, imagine how much guidance has yet to be issued that will not be in the LRMs included in the Cycle 4 documents.

 

 

 

[Belgarath]

And if you handle 403(b) plans, that's an additional workload (restatements) that hits sooner.

[G8Rs]

The amendment you have now will be different by the time the deadline hits (2026 or later for governmental or multiemployer plans). But, there's no harm adopting it as long as everyone is aware you'll be re-adopting another amendment. When you do amend in 2026 (generally wait as long as possible to capture the latest updates), you have to retroactively reflect how the plan was operated. Keeping track of that may be tough, especially when there is a change in service providers. So, adopting the amendment might serve as a way to memorialize what was done. But if you go that route, presumably you'd also want to do that for the other changes (CARES and SECURE 2.0). A checklist also works. I wouldn't rely solely on employee communications because those reflect only the material changes to the plan.  

[Ilene Ferenczy]

While it makes sense not to sign an amendment in the interim unless the plan is terminating, you need to be sure to keep track of actual administrative decisions in the meantime.  The client or TPA may want to mark the proposed amendment as PROPOSED or DRAFT or something like that with a plan year notated, and then complete it simply as a means of denoting for the file what elections were made.  It is possible that preapproved plan providers are ... um, providing ... something for this purpose.

Just sayin' ....

[CuseFan]

Yes, great points. We have plan sponsors sign off on "Plan Administrator Memorandums" that itemize their desires on administrative items that are implemented in practice now but amended for later, so there is file documentation when it comes time for the amendment.

[Peter Gulia]

Thank you, everyone, for your further thoughts.

Fortunately, my client (without relying on the recordkeeper, and even without using my records) has kept and will continue to keep its own top-notch records on which changes, if any, it implemented, and exactly when; which changes it, so far, omits; and which changes it resolves to decide later.